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Life insurance payment

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inheritance tax consequences

Many people have taken out life insurance to ensure that their surviving relatives are looked after in the event of the death of the insured. Is this payment subject to inheritance tax?

The capital paid out by the life insurance after the death of the policyholder can then be used to pay off the mortgage or the rent of the house, for example.

There are several types of life insurance which pay out in the event of death, during life, a mixed life insurance and so on.

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Payment subject to inheritance tax

Life insurance payments, if paid in full or in part upon the death of the insured, may be subject to inheritance tax. This seems strange at first sight, since in principle nothing is received from the testator's estate upon death, but directly from the insurance policy. So why should inheritance tax be paid on such a payment?

If such life insurance benefits were not subject to inheritance tax on death, it would be relatively easy for a policyholder to pay his entire estate to the insurer in the form of insurance premiums during his lifetime. If the policyholder were also the insured, his entire estate could be enjoyed free of inheritance tax by the beneficiaries of the insurance upon his death. This is not the legislator's intention and it is therefore stipulated that life insurance payments are subject to inheritance tax upon death.

However, if nothing has been taken from the testator's estate in connection with the life insurance payment, the life insurance payment will not be subject to inheritance tax upon death. It may therefore be important that the insured and the policyholder are not the same person.

 Married and (registered) partners

For answering the question whether a life insurance payment on the death of a married person or partner is taxable with inheritance tax, whereby we assume that the insurance was taken out on the life of the spouse or partner, the marital property regime is important.

 Community of goods

If the partners are married in community of property, there is one community of property between them of which each one is half owner. This means that the premiums for the life insurance policy that was taken out on spouse A's life, but that was paid by spouse B, were paid from the joint assets. As a result, half of the amount paid out by the life insurance policy is subject to inheritance tax.

 Marital Conditions

If the partners are married under prenuptial agreements and the premiums for the life insurance are paid in the life of spouse A by spouse B, the life insurance benefit will not be subject to inheritance tax. After all, nothing was taken from the testator's estate in connection with the life insurance payment.

 Registered partnership

In principle, what is stated under community of goods unless partnership conditions have been drawn up. Depending on the conditions drawn up, the following applies prenuptial agreements.

Do you have questions about the tax treatment of your life insurance benefit or that of your partner, or do you have questions about inheritance tax? Please contact contact with us!

More information

Niek Pilgram
Niek Pilgram

tax advisor
+31 (0)35 628 57 53
niek@habermehl.tax

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